Bond Market Update

Market went data way

• U.S. Treasuries were greeted by a batch of better-than-expected economic data today, highlighted by the June retail sales and weekly initial jobless claims reports that were both solid in terms of their messaging for consumer spending and consumer spending potential. The stock market picked up on that takeaway and enjoyed a broad-based rally effort that sent the S&P 500 and Nasdaq Composite to new record highs. The Treasury market got stymied by the positive economic news and some remarks from New York Fed President Williams (FOMC voter) and Fed Governor Kugler (FOMC voter). Both Fed officials indicated that the current policy rate is appropriate for the conditions they see in front of them, which includes the possibility of tariff-driven inflation in coming months. Treasuries, however, suffered only modest losses, with shorter-dated securities faring worse than longer-dated securities in a curve-flattening trade. The U.S. Dollar Index increased 0.3% to 98.68.
• Yield Check:
  • 2-yr: +3 bps to 3.92%
  • 3-yr: +3 bps to 3.89%
  • 5-yr: +2 bps to 4.01%
  • 10-yr: +1 bp to 4.47%
  • 30-yr: unch at 5.02%

• News:
  • President Trump considering 10-15% tariff rates for 150 nations. Bloomberg
  • New York Fed President Williams (FOMC voter) says tariffs could drive up inflation and that current policy is entirely appropriate
  • Fed GovernorKugler (FOMC voter) says she "finds it appropriate to hold our policy rate at the current level for some time"
  • The Senate passes a bill to eliminate $9 bln in spending on foreign aid and public broadcasting. The House will vote on the bill later today. Washington Post
  • EU preparing retaliatory tariffs on US tariffs and export controls. FT
  • President Trump asks Supreme Court to end lower court challenge to tariffs. Bloomberg
  • House votes to advance stablecoin legislation to a full House vote which is expected today. Politico
  • U.S. will soon impose 93.5% tariff on imports of battery material from China. Bloomberg
  • National security concerns impacting White House chip deal with U.A.E. WSJ
  • The EU is reportedly preparing a list of U.S. services that could be hit with tariffs on top of planned tariffs on imports of U.S. goods
  • Eurozone's June CPI 0.3% m/m, as expected (last 0.0%); 2.0% yr/yr, as expected (last 1.9%). June Core CPI 0.4% m/m, as expected (last 0.0%); 2.3% yr/yr, as expected (last 2.3%)
  • Japan's June imports 0.2% yr/yr (expected -1.6%; last -7.7%) and exports -0.5% yr/yr (expected 0.5%; last -1.7%)
• Today's Data:
  • Total retail sales increased 0.6% month-over-month in June (Briefing.com consensus: 0.2%) following a 0.9% decline in May. Excluding autos, retail sales rose 0.5% month-over-month (Briefing.com consensus: 0.3%) following an upwardly revised 0.2% decline (from -0.3%) in May.
    • The key takeaway from the report is that the sales pickup was fairly broad-based across retail businesses following declines in April and May. Importantly, the June report also conveyed increases in discretionary spending activity, captured in areas like autos (+1.2%), apparel (+0.9%), building materials and garden equipment supplies (+0.9%), and food services and drinking places (+0.6%).
  • Initial jobless claims for the week ending July 12 decreased by 7,000 to 221,000 (Briefing.com consensus: 230,000). Continuing jobless claims for the week ending July 5 increased by 2,000 to 1.956 million.
    • The key takeaway from the report is the remarkably low level of initial jobless claims, which connotes limited layoff activity that fits hand-in-hand with good business conditions and a good outlook.
  • The Philadelphia Fed Index jumped to 15.9 in July (Briefing.com consensus: -0.2) from -4.0 in June, led by increases in the indexes for new orders, shipments, and the number of employees. However, there were also increases registered in the indexes for prices paid and prices received. The dividing line between expansion and contraction is 0.0.
  • Import prices in June were up 0.1%, as were nonfuel import prices. Export prices, meanwhile, jumped 0.5% month-over-month, as did non-agricultural export prices. On a year-over-year basis, import prices were down 0.2%, nonfuel import prices were up 1.2%, export prices increased 2.8%, and nonagricultural export prices jumped 2.9%.
  • July NAHB Housing Market Index (Actual 33; Briefing.com consensus: 32; prior 32)
  • May Business Inventories (Actual 0.0%; Briefing.com consensus -0.1%; prior 0.0%)
• Commodities:
  • WTI crude: -0.2% to $66.25/bbl
  • Gold: -0.4% to $3345.50/ozt
  • Copper: -0.4% to $5.51/lb
• Currencies:
  • EUR/USD: -0.5% to 1.1587
  • GBP/USD: -0.2% to 1.3410
  • USD/CNH: +0.1% to 7.1864
  • USD/JPY: +0.6% to 148.73
• The Day Ahead:
  • 08:30 ET: June Housing Starts (Briefing.com consensus: 1300K; prior 1256K) and Building Permits (Briefing.com consensus: 1383K; prior 1393K)
  • 10:00 ET: Preliminary July Univ. of Michigan Consumer Sentiment (Briefing.com consensus: 61.5; prior 60.7)